Fed Proposes 18-Month Extension for Single-Counterparty Credit Limit Final Rule

The Federal Reserve Board on Friday issued a proposal to extend the deadline for its final rule limiting the amount of credit exposure that foreign banking organizations can have to each other and to other counterparties. The agency is proposing to extend the effective date until July 1, 2021, for FBOs with characteristics of a global systemically important banking organization and Jan. 1, 2022, for all other FBOs subject to the rule.

Under the final rule—which was required under Section 165 of the Dodd-Frank Act—a U.S. GSIB’s intermediate holding company is limited to a credit exposure not to exceed 15% of its tier 1 capital to another systemically important financial firm. In addition, GSIBs are restricted to credit exposures of no more than 25% of tier 1 capital to all other counterparties. The rule also applies to foreign banks with $50 billion or more in total U.S. consolidated assets, with some tailoring to address, for example, how it applies if a similar rule is in effect in the institution’s home country.